One of the big questions discussed in the news after Prince’s death is “Who gets his estate?” According to the media, Prince had not done any estate planning — no will, no trust set up to own his assets and distribute them according to his wishes. Unfortunately, this is the case for the majority of us. Why does it matter?
Avoid probate: First, if you set up a trust and that trust owns your assets before you die, your estate avoids probate. Probate requires court action and attorneys to divide up your assets even if you have a will. That means some of your assets will have to be used to cover the costs of probate instead of going to the people or organizations that you want your assets to go to. A court proceeding also means all of your assets become public knowledge. Anyone can request the court records and find out about everything you owned at the time of your death. If all your assets are owned by your trust, all the prying eyes will find is that you had set up a trust which owned all your assets.
Decide who inherits: The second reason it is important to prepare with estate planning is that you get to decide before your death who will receive your assets. To accomplish this, you must have a will. Even if you have set up a trust to own all your assets, you still need to have a will just in case there are some assets that didn’t make it into your trust.
What happens if you, like Prince, do not have a will or a trust? Your assets will be divided according to the laws of the state you live in or where your property is. In Nebraska, here are the rules:
- You die with a spouse but no descendants or parents: Your spouse inherits everything.
- You die with a spouse and descendants from you and that spouse: Your spouse inherits the first $100,000 plus half of the balance. Your descendants inherit the rest.
- You die with a spouse and one or more descendants from you and someone other than your spouse: Your spouse inherits half of your estate. Your descendants inherit the rest.
- You die with a spouse and parents: Your spouse inherits the first $100,000 plus half of the balance. Your parents inherit the rest.
- You die with children but no spouse: Your children inherit everything
- You die with parents but no spouse or descendants: Your parents inherit everything.
- You die with siblings but no spouse, descendants, or parents: Your siblings inherit everything.
The big question is, do you want to decide who inherits your assets or do you want you to be like Prince and have state law and the courts decide? If you want to decide, here’s what you need to do:
- Set up an appointment with a good estate planning attorney.
- Create a will.
- If you want to avoid probate, set up a revocable trust. Make sure you transfer the ownership of your assets into the trust. If you don’t take the legal step to transfer the assets, you still own the assets outside of your trust and you will not avoid probate.
- Make sure your assets that automatically pass according to law are set up the way you want them to be. Examples:
- Retirement plans: Check your beneficiary or beneficiaries. This is especially important if you have had a major life event such as a marriage or divorce.
- Life insurance or annuity policies: Are the named beneficiaries who you want them to be?
- Bank accounts: Joint accounts with rights of survivorship pass to the living owner at the death of one of the owners.
- Real estate.
If you would like more information or need help, send me an email: [email protected].Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.